Closely Watched Sackett Case Argued in Supreme Court

The U.S. Supreme Court heard oral argument on January 9, 2012 in Sackett, v. EPA,[1] a case that has the potential to change EPA administrative enforcement under the Clean Water Act (“CWA”). Sackett involves “pre-enforcement review,” the ability of a defendant to obtain judicial review of administrative compliance orders without running the risk of penalties in an EPA enforcement action. The legal issue in the case is whether a pre-enforcement review bar can be implied into the CWA and – even if it can – whether an implied ban would violate the due process clause of the U.S. Constitution. A clear majority of the Court appeared more sympathetic to the plaintiff than the government, and many court-watchers have predicted that EPA may lose,[2] opening the door to direct judicial appeals of government enforcement orders under the CWA, and perhaps other statutes.

Background

The CWA prohibits the discharge of fill material into wetlands without a permit under § 404 of the Act. Administration of the § 404 permit program is conducted by the United States Army Corps of Engineers (“Corps”), but the Corps shares enforcement authority with EPA. When EPA determines that an unauthorized discharge has occurred, it has three enforcement options: (1) assess an administrative penalty;[3] (2) initiate a civil enforcement action in U.S. district court;[4] or (3) issue an administrative compliance order directing the violator to remove the discharged material.[5] A party that fails to comply with an administrative order is potentially liable for up to $37,500 for each day of non-compliance with that order and potentially an additional $37,500 per day for the underlying CWA violation as well.[6]

The Sacketts own a 0.63 acre undeveloped parcel in Idaho. In 2007, they filled a portion of their property without a CWA permit. EPA determined that the fill violated the CWA because the parcel contained a jurisdictional wetland and issued an administrative compliance order requiring the Sacketts to remove the fill and restore the parcel to its original condition. The Sacketts petitioned EPA for a hearing to challenge the wetland determination and, after EPA refused, filed suit in district court. EPA argued that review of an agency order was barred unless the agency first sued (which it had not) and insisted that the Sacketts comply, threatening penalties if they did not. The district court agreed, and dismissed the Sacketts’ suit for lack of jurisdiction.

The Sacketts appealed to the Ninth Circuit, arguing that: (1) the Administrative Procedure Act (“APA”) allows pre-enforcement review of CWA compliance orders; and (2) due process requires EPA to allow pre-enforcement review. The Ninth Circuit affirmed the district court, joining four other U.S. Circuit Courts of Appeal[7] in concluding that the CWA impliedly barred pre-enforcement review under the APA and that the pre-enforcement bar did not violate due process.[8]

The court held that pre-enforcement review would slow government enforcement and that Congress had impliedly allowed EPA the latitude to choose between filing an initial suit in district court and acting unilaterally through an administrative order.[9] The Ninth Circuit also rejected the Sacketts’ due process arguments, finding that due process was satisfied because: (1) judicial review of the order was available once EPA brought an enforcement action; (2) nothing barred the Sacketts from seeking a § 404 permit to fill their property (the denial of which would be reviewable in district court); and (3) the CWA authorizes the court, not EPA, to impose penalties based on a “wide range of case-specific equitable factors.”[10]

On June 28, 2011, the Supreme Court granted cert to consider: (1) whether petitioners may seek pre-enforcement judicial review of the administrative compliance order under the APA; and (2) if not, whether petitioners’ inability to seek pre-enforcement judicial review of the administrative compliance order violates their rights under the Due Process Clause.[11]

The Sacketts’ Argument

Damien M. Schiff of the Pacific Legal Foundation argued the Sacketts’ case.[12] The Court’s questions focused on the potential for double penalties, whether other remedies (including after-the-fact permitting) were sufficient to protect the Sacketts’ interests, and the procedural complexities associated with allowing the Sacketts’ challenge to proceed.

Double Penalties for Violations of the Statute and the Order

Shortly after Mr. Schiff’s introduction, Justice Scalia questioned whether the Sacketts would be subject to a daily fine for violating the CWA with or without the compliance order. Mr. Schiff agreed, but asserted that the order subjected the Sacketts to “double liability.” Responding to Justice Kagan, Mr. Schiff clarified that when (and if) EPA pursued an enforcement action, the Sacketts would be liable for $37,500 in per day penalties for any CWA violations and another $37,500 per day for refusing to comply with the administrative order if the court ultimately sided with EPA. Mr. Schiff asserted that the agency “essentially conceded” as much in its own brief. Justice Ginsberg pointed out that the Ninth Circuit held that penalties for non-compliance with EPA’s order were not possible without an underlying CWA violation. Mr. Schiff acknowledged this fact, but responded that it “doesn’t change the fact that one can still be held liable for both” penalties where EPA establishes the underlying CWA violation. The Justices let the matter rest at that, although it would return soon.

Mr. Schiff began his argument by noting that in the four years since EPA’s compliance order charged the Sacketts with CWA violations and required them to restore the wetlands on their property, the Sacketts “have never been offered a meaningful opportunity for judicial review” guaranteed by the Due Process Clause and the APA. The Justices questioned whether the Sacketts could essentially challenge EPA’s grounds for the order by seeking an “after-the-fact” § 404 wetlands permit from the Corps. Justice Scalia questioned whether the crux of the Sacketts’ challenge to the compliance order – that their property did not contain jurisdictional wetlands subject to the CWA – could be answered by the Corps through the permitting process. The Ninth Circuit highlighted this option when dismissing the Sacketts’ Due Process concerns, noting that denial of a § 404 permit would be reviewable in district court.

While Mr. Schiff acknowledged that the Sacketts could theoretically request a § 404 permit, he highlighted several problems with the approach. First, if the Corps found no wetlands on the property, no permit would issue and the process would end without the opportunity for judicial review of the jurisdictional determination. Second, the Corps could theoretically refuse to entertain the permit request until the Sacketts complied with the outstanding compliance order. According to Mr. Schiff, the “existence of the compliance order makes it materially, substantially more difficult for the Sacketts to apply for an after-the-fact permit.” Third, the § 404 permitting process is administered by an entirely different agency (the Corps) than the agency that issued the compliance order (EPA) and it is unclear what effect one agency’s decision would have on the other (Chief Justice Roberts: “[The Corps] might give you a permit, and I take it that cuts off liability.”). Further, the Corps’ determination (or judicial review thereof) would “have no impact and would not remedy the deprivation that the Sacketts are currently enduring.”

Justice Alito agreed that it “seems very strange” that a party would be forced to apply for a wetlands permit “on the ground that they don’t need a permit at all.” Reinforcing this observation, Mr. Schiff criticized the proposal as “bizarre”: “[The Sacketts] have been injured by the EPA, by a compliance order, and they are told they must initiate an entirely separate administrative action with an entirely different agency in order to get indirect, tangential, possible review of the compliance order that has turned their world upside down for the last 4 years?”

Review Under the APA – “Something Is Better Than Nothing”

Redirecting the Justices back to the meat of his argument, Mr. Schiff rejected the permitting process as a substitute for pre-enforcement review under the APA. “Frankly,” Mr. Schiff intoned, “there is no other indication that Congress intended anything other than the [APA] to provide administrative review – for the adjudication of compliance orders.” Diving into the practical implications of the argument, Justice Ginsberg inquired as to what standard a court would apply to review such challenges. Mr. Schiff initially proposed the familiar APA arbitrary and capricious standard. Noting that arbitrary and capricious standard might not “do you very much good,” Justice Scalia questioned whether the Sacketts might do better under the “otherwise in violation of the law” APA language. Following up, Scalia predicted “Maybe [EPA] got it wrong, but to say it’s arbitrary and capricious, you are going to lose.” Responding “I certainly hope not,” Mr. Schiff acknowledged that the Sacketts would have an uphill battle under any standard granting deference to the agency. However, “even if the Sacketts on remand don’t get their ideal mode of judicial review, something is frankly better than nothing.”

From this exchange, the Justices proceeded to the procedural complexities that would arise should the Justices remand the case for APA review. Could an APA ruling collaterally estop a decision in the subsequent enforcement action? Would there be differing standards of review in the APA vs. enforcement actions? What would those standards be, and on what evidence? Would the agency be entitled to deference in the APA action and/or the enforcement action? Mr. Schiff sought to address each procedural complexity in turn, before reserving the balance of his time.

In summing up his clients’ requested relief under the APA, Mr. Schiff may have foretold the future of pre-enforcement review of CWA administrative orders:

In this APA cause of action, the Sacketts challenge the jurisdictional predicate, and that is really a two part determination. One is, are there wetlands on the property; and two, are those wetlands sufficiently connected to navigable waters to justify Federal regulation. . . . [T]his so in this case that is what our APA cause of action on remand would look like. We would say let’s look at the record that EPA has assembled at the time it issued the compliance order and does that record support the finding of statutory violation.

With that, the Justices’ attention turned to the government’s case.

The Government’s Argument

Deputy Solicitor General Malcolm L. Stewart argued the government’s case.[13] The Court’s questions to the government revealed a deep concern with the EPA’s interpretations of the scope of its enforcement authority; a concern which Mr. Stewart appeared unable to allay during argument. By the time the Sacketts’ attorney stood for rebuttal, his clients’ plight – as homeowners faced with the choice between costly compliance and mounting penalties, without any ability to challenge the underlying claim against them – was clearly foremost on the Court’s mind.

Double Penalties – “I’m Not Going to Bet My House”

In a decision that in retrospect appears to have been fateful, Deputy Solicitor Stewart began his argument by picking up a thread left by the Sacketts’ attorney – that the maximum penalties faced by the Sacketts totaled $75,000 per day, rather than $37,500.[14] Mr. Stewart immediately conceded that the CWA “does provide separately for penalties for violating the statute and penalties for violating the compliance order,” adding later that the U.S. believed that a district court would “have the authority” to impose penalties both for violation of the compliance order and the underlying statutory violation.

Mr. Stewart’s stated purpose in conceding the point[15] was to begin to “clarify exactly what the compliance order does and does not do in terms of altering the legal regime to which the Sacketts are subject.” But he did not get the chance. Pressed primarily by Chief Justice Roberts and Justices Breyer, Alito, and Scalia, Mr. Stewart attempted to dismiss the issue as unimportant, as the possibility of double penalties was “theoretical rather than . . . practical.” This induced sharp questions from the bench. Mr. Stewart stuck to the position that such authority was “theoretical” because no court had ever imposed such penalties, and, to his knowledge, EPA had never sought them. Justice Alito, however, forced him to concede that the government had never “adopted a rule or … policy [to] never seek anything more than the underlying violation.” Justice Scalia commented that “I’m not going to bet my house” on the proposition that EPA would never seek double penalties in the future.

Deputy Solicitor General Stewart ultimately was unable to effectively justify the policy underlying EPA’s authority to seek double penalties. Mr. Stewart compared the situation to one in which a court increased penalties (within statutory maximums) for the period of time after which a defendant was warned of the violation but failed to comply; but the court did not appear interested. He did not argue that such authority was justified on policy grounds – for example, as an intentional Congressional choice to seek to promote environmental protection by penalizing non-compliance with agency orders as separate violations.

Demand and Compliance – “What would you do, Mr. Stewart?”

After a few transitory points – Mr. Stewart explained EPA’s position that penalties accrue for every day that fill remains in wetlands, rather than simply for the day the fill occurs; and Justice Scalia took issue with EPA’s initial requirement, subsequently withdrawn, that the Sacketts plant trees (“It shows the high-handedness of the agency”) – the argument moved squarely to the difficulties faced by a recipient of a compliance order. As posed by Chief Justice Roberts, the question was: “[W]hat would you do, Mr. Stewart, if you received this compliance order? You don’t think your property has wetlands on it and you get this compliance order from the EPA. What would you do?”

Mr. Stewart’s response, again, did not appear to appeal to the Court. “I think at that stage your options would be limited.” He offered that the Sacketts could attempt to get a so-called after-the-fact permit from the Army Corps of Engineers for fill activity that had already occurred. He immediately conceded, however, that the Corps would not issue such a permit if another agency is pursuing enforcement (e.g., by sending a compliance order). As an alternative, then, he offered that “you could simply comply with the compliance order at the cost of, it’s been estimated, $27,000.” The Deputy Solicitor General conceded that this lack of options “may” put the Sacketts in an “unattractive position,” prompting the following strong response from Justice Alito:

Mr. Stewart, if you related the facts of this case as they come to us to an ordinary homeowner, don’t you think most ordinary homeowners would say this kind of thing can’t happen in the United States? You don’t – you buy property to build a house. You think maybe there is a little drainage problem in part of your lot, so you start to build the house and then you get an order from the EPA which says: You have filled in wetlands, so you can’t build your house; remove the fill, put in all kinds of plants; and now you have to let us on your premises whenever we want to. You have to turn over to us all sorts of documents, and for every day that you don’t do all this you are accumulating a potential fine of $75,000. And by the way, there is no way you can go to court to challenge our determination that this is a wetlands until such time as we choose to sue you.

Mr. Stewart responded that the compliance order would not have been the homeowners’ first indication that there had been a violation. To Justice Alito’s follow-up (“So what?”), Mr. Stewart eventually replied that the proper response was to apply to the Corps for a fill permit prior to drawing a compliance order in the first place. He noted that seminal CWA jurisdiction cases (for example, SWANCC and Carabell (consolidated with Rapanos)) lead to judicial review only after the Corps had denied a permit. He posited that the Corps would eventually issue a letter, binding on EPA, expressing its determination that there were no wetlands, and that failing to seek this determination placed the Sacketts in a position where it may be fair that they were not afforded judicial review of EPA’s decision. If the Sacketts “had wanted a judicial resolution of [whether the wetlands on their property were covered by the CWA], they could have filed a permit application before discharging … All we’re saying is they can’t discharge fill, wait to see whether EPA notices, and then insist upon immediate judicial review if EPA notices and objects.” This, of course, did not explain what a person is supposed to do if they found themselves in the Sacketts’ position: facing a compliance order having not previously sought a fill permit; a permit which, if their property did not have jurisdictional wetlands on it, they would not have needed to seek.

Judicial Review and Finality – “All EPA has to do is make whatever finding it wants.”

Having clarified the government’s position on where the Sacketts went astray, Mr. Stewart moved on to defend EPA’s insistence that its Compliance Order was not judicially reviewable. This again drew a response from Justice Breyer – a former administrative law professor. Ultimately, the availability of judicial review under the APA often turns on the question of finality. As Justice Breyer put it: “So I read the [Compliance O]rder. It looks like about as final a thing as I have ever seen. So tell me why I am wrong .…” In addition, Justice Ginsburg expressed her concern that the Sacketts had, in fact, requested a hearing on the question of jurisdiction, and EPA had refused to grant them one.

Mr. Stewart’s response was that the Compliance Order did not express EPA’s final position, “because it invites the Sacketts to provide further comment,” and in addition that the order was more akin to a warning than a final action. In Mr. Stewart’s view, “when the agency is exercising what is essentially its prosecutorial function, that is, warning regulated parties we may … sue you if you don’t do the following things. It would be quite common for enforcement personnel to entertain informal overtures from the regulated party … but I think it would be extraordinary, for instance, for a U.S. Attorney’s office to grant a formal hearing to a potential criminal defendant in order to … resolve the [of whether] question criminal charges should be brought.”

Justice Breyer pushed back: “here there doesn’t seem anything more for the agency to do, and here the person whom the order is directed against is being hurt a lot.” Justice Kagan interjected that generally in such matters, there has already been substantial discussion between EPA and the party before a compliance order is issued, and therefore that it is very unlikely that EPA would change its position based on the opportunity to modify the order, to which Mr. Stewart agreed.

When Justice Breyer pointed out that “This is not a warning,” Mr. Stewart conceded the point, but argued that the order was not complete, in part, because EPA had likely not gathered all the evidence it would need if it were to prove the underlying jurisdictional issue in court. This prompted a final strong response from Justice Alito, who stated his opinion that, if EPA has not gathered enough evidence to make its case to a court, its decision to issue an order was “even more outrageous.” Chief Justice Roberts stepped in: “In other words, you hope you have … a sufficient basis [for the finding that there was a violation]. And because of the administrative compliance order, you’re never going to be put to the test, because most land owners aren’t going to say, I’m going to risk the $37,000 a day. All EPA has to do is make whatever finding it wants, and realize that in 99 percent of the cases, it’s never going to be put to the test.”

Mr. Stewart did not respond directly. Rather, he returned to the point he had made earlier: the Sacketts could have filed for a permit, and it was not proper to allow them to act first and then seek judicial review. With that, his time was up.

Conclusion

The Sackett’s attorney offered to rest without rebuttal and fielded a few minor questions before argument ended. Eight Justices – Roberts, Alito, Scalia, Kennedy, Breyer, Ginsburg, Sotomayor, and Kagan[16] – had expressed strong concerns with EPA’s case. The breadth of the holding is not yet clear – “due process” was only mentioned twice at oral argument, each time by the Sacketts’ attorney. But if the oral argument was an indication of the final decision, we may soon see major changes in EPA’s enforcement authority under the CWA and many other federal environmental laws.

[12] The Pacific Legal Foundation also represented Mr. Rapanos in the landmark Clean Water Act jurisdictional decision Rapanos v. U.S., 547 U.S. 715 (2006). Before that, it represented the petitioner in Nollan v. California Coastal Commission, 483 U.S. 825 (1987), an important modern decision on government takings of property through regulation.

[14] The maximum penalties have been increased since the Sacketts received their order. The current penalty maximum ($37,500 per violation) is used here, as the discussion relates to maximum penalties.

[15] In fact, the point had previously been conceded in briefing. Mr. Stewart explained that the government had been the one to notify the court of this fact in briefing, as “an exercise of our duty of candor to the court,” and that the Sacketts had not even seemed aware of the possibility until then, implying that it was not a driving concern for them. This prompted Justice Kennedy to ask (to laughter) whether Mr. Stewart believed the Sacketts had been “getting a good night’s sleep” before this revelation.